Government Contracts Legislative And Regulatory Update - January - Government Contracts, Procurement & PPP

Our January edition of "Government Contracts Legislative and Regulatory Update" offers a summary of the relevant changes that took place during the month of December.

This update will also be available in Contract Management Magazine, which is published monthly by the National Contract Management Association (NCMA).

Legislative Update

2020 US Defense and Security Policy Outlook

Defense and security policy issues will remain a hot topic in Washington during the 2020 election year. Following a contentious process to produce a final version of the 2021 National Defense Authorization Act ("NDAA") during his first year as Chairman of the House Armed Services Committee ("HASC") in 2019, HASC Chairman Adam Smith ("D-WA") has committed to keeping partisan provisions that will not pass muster in the Republican-controlled Senate out of the bill in 2020. The NDAA, which establishes policy and program funding priorities for the Department of Defense, has been enacted into law for 59 consecutive years. Other significant defense policy issues that will generate debate and discussion in Washington and beyond in 2020 include:

Deployment of US military forces. In December 2019, the Trump Administration reported to Congress deployments covered by the War Powers Resolution to 19 different countries. US military forces are engaged in wars or counterterrorism missions, or at minimum, are equipped for combat, in Afghanistan, Iraq, Syria, Yemen, Saudi Arabia, Jordan, Lebanon, Turkey, Somalia, Kenya, Djibouti, Niger, Cameroon, Chad, Nigeria, Cuba, Philippines, Egypt, and Kosovo. Of note is that this list does not reflect the entirety of the global deployment footprint of US special operations forces and US intelligence community paramilitary forces.
US national security innovation. The Trump Administration and a bipartisan group of key defense policymakers in Congress will continue to prioritize funding for defense innovation and a streamlining of defense acquisition processes to ensure that the US can compete with the rapid pace of technological development across the globe. This will include continued investment in and scaling of artificial intelligence and offensive cyber warfare capabilities, and continued investment in the development of hypersonic weapons.
US strategic alliances. The importance to US security and geopolitical strategic interests of maintaining longstanding alliances and partnerships, such as with North Atlantic Treaty Organization member countries, and other key partners in the Middle East, Africa, Asia, and Latin America, will be discussed throughout 2020 in the White House, in the halls of Congress, and on congressional and presidential campaign trails.
Nuclear and other strategic offensive weapons threat reduction. The Trump Administration and Congress will consider the prospect of broadening the New START nuclear arms reduction and limitation treaty between the US and Russian Federation to include China before the treaty expires in February 2021. US officials will also continue to debate the most effective strategies for mitigation of continued nuclear proliferation in North Korea and Iran, and for keeping existing nuclear, chemical, biological, and radiological weapons out of the hands of other rogue state and non-state actors.

[This article discusses the 2021 NDAA. For information regarding the 2020 NDAA, signed by President Trump on December 20, 2019, see What The Defense Contracting Community Needs to Know.]

Regulatory Update

SBA Issues Final Rule on Calculation of Average Annual Receipts

On December 5, 2019, the Small Business Administration ("SBA") issued a final rule, effective January 6, 2020, modifying its method for calculating average annual receipts used to prescribe size standards for small businesses. In accordance with the Small Business Runway Extension Act of 2018, the SBA is changing its regulations on the calculation of average annual receipts for all of SBA's receipts-based size standards, and for other agencies' proposed receipts-based size standards, from a three-year averaging period to a five-year averaging period, outside of the SBA Business Loan and Disaster Loan Programs. Under the final rule, mid-sized businesses that just recently exceeded the size standards could regain their small business status if they met the new requirements, and small businesses close to exceeding the size standard would be able to retain their small business status longer. Additionally, the final rule helps businesses that may be adversely impacted by the five-year measuring period due to declining revenues, by allowing a transition period until January 6, 2022. This transition period allows businesses to choose either the three-year averaging period or the five-year averaging period for calculating average annual receipts for size standards purposes. (84 Fed. Reg. 66,561 (Dec. 5, 2019)).

FAR Council Issues Second Interim Rule Regarding a Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment

On December 13, 2019, the Department of Defense ("DoD"), the General Services Administration ("GSA"), and the National Aeronautics and Space Administration issued a second interim rule, effective immediately, to amend the Federal Acquisition Regulation ("FAR") to require offerors to represent annually whether they offer the federal government equipment, systems or services that include covered telecommunications equipment or services. The interim rule implements Section 889(a)(1)(A) of the National Defense Authorization Act ("NDAA") for fiscal year 2019. This section prohibits the federal agencies from procuring, obtaining, extending, or renewing a contract to provide, "any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system," on or after August 13, 2019. "Covered telecommunications equipment or services" refers to the following:

Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities);
For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities);
Telecommunications or video surveillance services provided by such entities or using such equipment; and
Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

The first interim rule to implement this section was published at 84 Fed. Reg. 40216 on August 13, 2019, whereby the interim rule added a provision at FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment. FAR 52.204-24 provided in relevant part that an offeror represent on an offer-by-offer basis whether the offeror will or will not provide any covered telecommunications equipment or services to the government and, if so, required the offeror to provide additional disclosures. This newest interim rule reduces the burden placed in FAR 52.204-24 by allowing an offeror that represents that it does not provide "covered telecommunications equipment or services" in the new annual representation at FAR 52.204-26, Covered Telecommunications Equipment or Services—Representation, or in paragraph (v) of FAR 52.212-3, Offeror Representations and Certifications—Commercial Items, to skip the offer-by-offer representation within the provision at FAR 52.204-24. The new interim rule provides that banned entities will be added to SAM.gov's excluded parties list, "with an appropriate notation to identify that the prohibition is limited to certain products and services—the entity itself is not excluded." Pursuant to FAR 52.204-26, offerors must review the list of excluded parties in SAM.gov and confirm whether the equipment or services they are providing to the government come from one of the excluded parties. (84 Fed. Reg. 68,314 (Dec. 13, 2019)).

DoD Issues Interim Rule on Covered Defense Telecommunications Equipment or Services

Following the FAR Council's recent passage of an interim rule implementing section 899(a)(1)(a) of the NDAA for FY 2019, the DoD issued its own interim rule on December 31, 2019, effective immediately, amending the Defense Federal Acquisition Regulation Supplement ("DFARS") to implement Section 1656 of the NDAA for FY 2018 and Section 889(a)(1)(A) of the NDAA for FY 2019 related to the procurement of covered telecommunications equipment or services. Section 1656 prohibits the DoD from procuring, obtaining, extending, or renewing a contract for any equipment, system, or service to carry out the DoD nuclear deterrence or homeland defense missions that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system. Relatedly, Section 899(a)(1)(a) establishes a government-wide prohibition on procuring or obtaining, or extending or renewing a contract to procure or obtain, any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system. The interim rule is expected to increase security of systems and critical technology and is structured to align with the FAR implementation of Section 889(a)(1)(A) to prohibit the procurement of any equipment, system, or service to carry out the DoD nuclear deterrence or homeland defense missions that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system.

The interim rule adds DFARS subpart 204.21 Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment; the provision at DFARS 252.204-7016, Covered Defense Telecommunications Equipment or Services—Representation; the provision at DFARS 252.204-7017, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services—Representation; and the clause at DFARS 252.204-7018, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services. These additions mirror the FAR implementation at FAR subpart 4.21, the provisions at FAR 52.204-24 and 52.204-26, but goes further to address Section 1656 of the NDAA for FY 2018. To differentiate between the FAR and DFARS prohibitions, this DFARS rule uses the term "covered defense telecommunications equipment or services" instead of "covered telecommunications equipment or services," and provides a new definition of "covered foreign country" for the DFARS coverage of the section 1656 prohibition. This interim rule also adds text in DFARS subpart 212.3, Solicitation Provisions and Contract Clauses for the Acquisition of Commercial Items, and DFARS subpart 213.2, Actions at or Below the Micro-purchase Threshold, to address application of section 1656 to commercial items and micro-purchases. Further it amends DFARS 252.204-7007, Alternate A, Annual Representations and Certifications, by updating the list of annual representations and certifications to include the new provision at DFARS 252.204-7016. (84 Fed. Reg. 72,231 (Dec. 31, 2019)).

DoD Incorporates Revised Trade Agreement Thresholds

On December 31, 2019, the DoD issued a final rule, effective January 1, 2020, amending the DFARS to adjust updated thresholds for the application of the World Trade Organization Government Procurement Agreement ("WTOGPA") and the Free Trade Agreements ("FTA") as deterred by the Office of the United States Trade Representative. The trade agreement thresholds are adjusted every two years according to a predetermined formula set forth in the agreements. See below for updated thresholds. (84 Fed. Reg. 74,245 (Dec. 31, 2019)).

Trade Agreement	Supply Contract	Construction Contract
WTO GPA	$182,000	$7,008,000

FTAs
Australia FTA	$83,099	$7,008,000
Bahrain FTA	$182,000	$10,802,884
CAFTA-DR (Cost Rica, Dominican Republic, EL Salvador, Guatemala, Honduras, and Nicaragua)	$83,099	$7,088,000
Chile FTA	$83,099	$7,088,000
Columbia	$83,099	$7,088,000
Korea	$100,000	$7,088,000
Morocco FTA	$182,000	$7,088,000

NAFTA
Canada	$83,099	$10,802,884
Mexico	$83,099	$10,802,884
Panama FTA	$182,000	$7,008,000
Peru FTA	$182,000	$7,008,000
Singapore FTA	$83,099	$7,008,000

DoD Finalizes Proposed Rule Regarding Contractor Purchasing System Review Threshold

On December 31, 2019, DoD finalized its proposed rule published at 84 FR 25228 on May 31, 2019, to amend the DFARS to implement a recommendation from the Defense Contract Management Agency ("DCMA") to raise the contractor purchasing system review ("CPSR") threshold at FAR 44.302(a) from $25 million to $50 million. Prior to the final rule, FAR 44.302(a) required the administrative contracting officer ("ACO") to determine whether a contractor's sales to the federal government were expected to exceed $25 million within the following 12 months, and if so to determine if a CPSR was needed. The dollar threshold is used by the ACO in conjunction with the surveillance criteria cited at FAR 44.302(a), i.e., the contractor's past performance and the volume, complexity and dollar value of any subcontracts. FAR 44.302 also allows the head of the agency responsible for contract administration to raise or lower the $25 million CPSR threshold if it is considered to be in the government's best interest. Unchanged since 1996, the final rule raised the threshold upward to $50 million to appropriately "account for inflation, reduce burden on small contractors, and allow a more efficient and effective use of CPSR resources to review larger contractors where more taxpayer dollars are at risk." The majority of DoD CPSRs are performed by the DCMA. The intent behind the final rule is to provide a regulatory basis for allowing DoD personnel to support other essential priorities and missions of greater contractual risk, while reducing regulatory impact on contractors. It is estimated that the $50 million threshold will allow ACOs to reduce the number of contractor reviews by approximately 20 percent, while reducing the value of contract dollars covered by CPSRs by only 2 percent. No changes to the final rule were made as a result of public comments. (84 Fed. Reg. 72,247 (Dec. 31, 2019)).

DoD Finalizes Interim Rule on Restriction on the Acquisition of Certain Magnets and Tungsten

On December 31, 2019, the DoD adopted as final, effective immediately, an interim rule published at 84 FR 18156 on April 30, 2019, that implemented Section 871 of the NDAA for FY 2019. Section 871 prohibits acquisition of samarium-cobalt magnets, neodymium-iron-boron magnets, tungsten metal powder, and tungsten heavy alloy or any finished or semi-finished component containing tungsten heavy alloy melted or produced in North Korea, China, Russia, and Iran. These materials play an essential role in national defense. For example, the magnets play a role in many military applications, particularly in aviation and navigation, such as sonar radar and guidance systems. Tungsten, as another example, is heavily used in military applications, such as bullets, shrapnel head, and bullet-proof vehicles. Section 871, which was effective in August 2018, imposes significant new restrictions at 10 U.S.C. § 2533c on the use of foreign magnets in the military supply chain.

DoD views these restrictions as similar to those found in the Specialty Metals Amendment (10 U.S.C. § 2533b). 10 U.S.C. § 2533c, however, prohibits "covered material" that was "melted or produced" in China, Russia, North Korea, or Iran. The prohibition in 10 U.S.C. § 2533c applies to where the alloy is melted and the subsequent sintering operation takes place. The prohibition does allow for exceptions, including when covered materials from non-covered countries cannot be acquired at a reasonable price within the required time frame and an exception for commercially available off-the-shelf magnets incorporated into end items for electronic devices.

Significant changes from the interim rule include:

Definitions

Added definitions of "electronic device" and "tungsten heavy alloy" at DFARS 225.7018-1 and the associated clause at DFARS 252.225-7052, Restriction on the Acquisition of Certain Magnets and Tungsten.
Moved definitions of "assembly," "end item," and "subsystem," which apply to both specialty metals (DFARS 225.7003) and certain magnets and tungsten (DFARS 225.7018) from DFARS 225.7003 to DFARS 225.7001 and included them in the clause at DFARS 252.225-7052.

Production of tungsten.

Added a description of the production of tungsten at DFARS 225.7018-2(c), to explain the applicability of the restrictions on the production of tungsten.

Exceptions

Since samarium-cobalt magnets are restricted under 10 U.S.C. 2533b (specialty metals) as well as 10 U.S.C. 2533c:
Added cross references to DFARS Procedures, Guidance, and Information (PGI) at DFARS 225.7018-3 to provide guidance where the exceptions for samarium-cobalt magnets under 10 U.S.C. 2533b are more stringent than the comparable exceptions under 10 U.S.C. 2533c;
Provided the statutory cite to 10 U.S.C. 2533b(m)(4) and added the explanation of "required form" at DFARS 225.7003-3 and 2352.225-7009(c)(5), in lieu of the definitions of "required form" at DFARS 225.7003-1 and 252.225-7009(a), because it was not actually a definition of "required form" and a different explanation of "required form" is now required for the restrictions on samarium-cobalt and neodymium-iron-boron magnets; and
Added a tailored explanation of "required form" to the nonavailability exception for tungsten heavy alloy and certain magnets at DFARS 225.7018-3(d) and 252.225-7052(c)(2). No explanation of required form is necessary with regard to tungsten powder.

Approval level for nonavailability determination

Lowered the approval level to head of the contracting activity for individual nonavailability determinations at DFARS 225.7018-4.

(84 Fed. Reg. 72,239 (Dec. 31, 2019)).

DoD Issues Interim Rule on Covered Defense Telecommunications Equipment or Services

Following on the heels of the FAR Council's second interim rule implementing Section 899(a)(1)(a) of the NDAA for FY 2019, the DoD on December 31, 2019, issued an interim rule, effective immediately, amending the Defense Federal Acquisition Regulation Supplement ("DFARS") to implement Section 1656 of the NDAA for FY 2018 and Section 889(a)(1)(A) of the NDAA for FY 2019 related to the procurement of covered telecommunications equipment or services. Section 1656 prohibits the DoD from procuring or obtaining, or extending or renewing a contract to procure or obtain, any equipment, system, or service to carry out the DoD nuclear deterrence or homeland defense missions that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system. Relatedly, Section 899(a)(1)(a) establishes a government-wide prohibition on procuring or obtaining, or extending or renewing a contract to procure or obtain, any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system. The interim rule is expected to increase security of systems and critical technology and is structured to align with the FAR implementation of Section 889(a)(1)(A) to prohibit the procurement of any equipment, system, or service to carry out the DoD nuclear deterrence or homeland defense missions that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as a critical technology as a part of any system.

The interim rule adds DFARS subpart 204.21, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment; the provision at DFARS 252.204-7016, Covered Defense Telecommunications Equipment or Services—Representation; the provision at DFARS 252.204-7017, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services—Representation; and the clause at DFARS 252.204-7018, Prohibition on the Acquisition of Covered Defense Telecommunications Equipment or Services. These additions mirror the FAR implementation at FAR subpart 4.21, the provisions at FAR 52.204-24 and 52.204-26, but goes further to address Section 1656 of the NDAA for FY 2018. To differentiate between the FAR and DFARS prohibitions, this DFARS rule uses the term "covered defense telecommunications equipment or services" instead of "covered telecommunications equipment or services," and provides a new definition of "covered foreign country" for the DFARS coverage of the section 1656 prohibition. This interim rule also adds text in DFARS subpart 212.3, Solicitation Provisions and Contract Clauses for the Acquisition of Commercial Items, and DFARS subpart 213.2, Actions at or Below the Micro-purchase Threshold, to address application of section 1656 to commercial items and micro-purchases. Further it amends DFARS 252.204-7007, Alternate A, Annual Representations and Certifications, by updating the list of annual representations and certifications to include the new provision at DFARS 252.204-7016. (84 Fed. Reg. 72,231 (Dec. 31, 2019)).

DoD Issues Class Deviation on the Authority to Acquire Products and Services Produced in Afghanistan or in Countries Along a Major Route of Supply to Afghanistan

On December 26, 2019, DoD issued a new class deviation, effective immediately, "to the extent feasible," requiring contracting officers to use the procedures and clauses attached to the class deviation in lieu of the procedures and clauses at DFARS 225.7703, Enhanced Authority to Acquire Products or Services from Afghanistan, 252.225-7023, Preference for Products or Services from Afghanistan, 252.225-7024, Requirement for Products or Services from Afghanistan, and 252.225-7026, Acquisition Restricted to Products or Services from Afghanistan, when acquiring products in services in support of military and stability operations in Afghanistan. The class deviation implements Section 801 of the NDAA for FY 2010 (as amended by Section 866 of the NDAA for FY 2016 and Section 1212 of the NDAA for FY 2020) and Section 886 of the NDAA for FY 2008 (as amended by Section 842 of the NDAA for FY 2013) and Section 886 of the NDAA for FY 2016), which together authorize the DoD to provide a preference to limit competition to products or services from Afghanistan, as well as a Central Asian State, Pakistan or the South Caucasus when acquiring products or services, other than small arms, in support of operations in Afghanistan.

Specifically, the class deviation requires contracting officers, if the acquisition is in support of operations in Afghanistan, and unless an exception for AbilityOne product applies, to:

Prepare and execute a written determination in accordance with DFARS 225.7799-1 and 225.7799-2 (DEVIATION 2020-O0002);
Evaluate offers in accordance with DFARS 225.7799-3 (DEVIATION 2020-O0002); and
Include the appropriate provision and/or clause in the solicitation and contract in accordance with DFARS 225.7799-4 (DEVIATION 2020-O0002).

The class deviation is expected to remain in effect until December 31, 2021, or until otherwise rescinded.

Industry Developments

DoD Issues CMMC v0.7

In early December 2019, the DoD issued a new draft version (v0.7) of the Cybersecurity Maturity Model Certification ("CMMC"). The CMMC is the DoD's forthcoming "unified cybersecurity standard" for DoD contractors and is intended to establish the framework by which contractors may obtain necessary certification levels to perform work on certain types of DoD contracts. The latest draft includes CMMC levels 1 thru 5, as well as an associated discussion and clarification for a subset of practices and processes in appendices B thru E. Significant updates in the current draft version are what appear to a be a near final set of additions of "practices" to obtain level 4 and 5 certifications and a revision to the "clarifications" section that now covers the requirements of levels 2 and 3 of the model. No comments are sought on the latest version and it looks like DoD is still on target for a final publication in January 2020. The DoD still intends to incorporate CMMC requirements in active requests for information ("RFIs"), starting in June 2020, and requests for proposals ("RFPs"), starting in Fall 2020.

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United States: Government Contracts Legislative And Regulatory Update - January